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"We are making decisions today regarding what our portfolio construction will look like with the end game in mind. Specifically, we are planning an asset mix that we believe will provide our shareholders with the most reliable, most sustainable market dividend with a steady growing net asset value per share" - Bowen S. Diehl

Capital Southwest Corporation announced that it has formed a joint venture with Main Street Capital Corporation to form I-45 SLF LLC, a senior loan fund that will invest primarily in syndicated senior secured loans in the upper middle market.

Capital Southwest is undergoing a transformation that includes a spin-off that will create two publicly traded entities: an internally managed BDC that will lend to middle market companies and retain the Capital Southwest name, and a diversified growth company to be called CSW Industrials. Shareholders of Capital Southwest will receive shares in CSW Industrials as a tax-free dividend.

Bowen Diehl, CSWC’s chief investment officer, said that the fund will have three investment “buckets.” The first is the corner of the market that BDCs have historically targeted, including senior “unitranche” debt, second-lien loans and subordinated debt; the second bucket will consist of loans to very small companies; the firm has applied for a Small Business Investment Company license. The I-45 fund will provide exposure to the third asset class, senior loans to somewhat larger companies.

“We are excited about this opportunity to partner with Main Street, as this joint venture gives us immediate access to their strong established syndicated senior loan origination platform, while leveraging our joint credit expertise in producing attractive risk-adjusted returns,” said Bowen Diehl, chief investment officer of CSWC, said in the press release.

Main Street and Capital Southwest expect to begin funding loans for I-45 SLF later this month.

I-45 SLF is expected to enter into a senior credit facility with leverage of up to 2x debt-to-equity and use the borrowings from that facility to fund the purchase of senior secured loan assets.